Owning rental properties: positives and negatives
Many people look at those who own and / or operate investment / rental properties and wonder, wouldn’t it be great to do it themselves? While some individuals and properties make a lot of sense, others don’t! Like most things in life, owning an investment property has both positives and negatives, and you owe it to yourself by fully considering, with your eyes wide open, some of the many factors and considerations involved. With that in mind, this article will briefly attempt, consider, review, and discuss some of these variables and considerations.
1. Comparisons / competitiveness, opportunity costs, uses of your money: Does buying and owning a particular property maximize your chances and return on investment, compared to other alternatives and uses? In other words, by doing so, will you get the most bang for your buck? When considering any real estate investment, start by fully evaluating not only the initial purchase price, but also how much it will take, both in the short and long term. Take the purchase price, plus the most immediate costs (first 2 years of ownership), incurred and involved. Then conservatively consider and use advance rent rolls (look at the local market and the competition, and use a figure of 80%, or four-fifths of that number, to see your rate of return). Look for a minimum rate of return of 6% (for example, if the property purchase plus the short-term price is $ 500,000, your total rent should be approximately $ 37,000, so your 80% figure is approximately $ 30,000, or 6% of the cost). Also, compare this to the opportunity costs, for your money, or what you could probably receive from other investment vehicles.)
2. Bookings: We suggest using the 80% figure, so that you are prepared for vacancies, etc. In addition, proceed, only, when you have reserved enough reserves, for contingencies, such as repairs, renovations, maintenance, conservation. etc.
3. Down payment, versus mortgage / loans: Most buy these smaller investment properties, with the help and assistance of obtaining a home loan. Be prepared to have enough rental lists and reserves, to pay your monthly expenses, including interest and mortgage principal, property taxes, insurance, services paid by the landlord, utilities, etc.
Four. Tenants and rents collected: Consider your tenants carefully and look for, trustworthy, trustworthy, with good credit, etc. There are various philosophies, and some owners proceed, seeking the highest possible rents, seeming to be willing to wait until they get it. However, that philosophy, may or may not, provide the maximum income – rolls, and the risk is, longer periods with vacancies. The other approach, is the one that I personally believe and follow, in the properties that I personally own and / or manage, is to seek rentals, in the middle of the package, to provide maximum service to the tenants and to maintain / maintain quality. tenants, for periods much longer than usual. Know your tolerance and personal philosophy, risk / reward, right from the start!
Is owning a rental home a good fit for you? Know what you are looking for and what you can afford, as well as your risk / reward tolerance!